The ARK Fintech Innovation ETF (NYSEARCA: ARKF) continues benefiting from its status as the ETF with the largest weight to Square (NYSE: SQ).
The actively managed ARKF allocates almost 12.1% of its weight to Square, meaningful exposure at a time when the fintech stock is higher by more than 23% over the past month. Jack Dorsey’s company rallied Monday amid talk it could be forging into the direct deposit space.
“The San Francisco-based company run by Twitter (TWTR) CEO Jack Dorsey is set to gobble up direct deposit share from banks because its software is faster and easier to use, ultimately gaining a market share of 20%, SunTrust analyst Andrew Jeffrey wrote in a morning note to clients,” reports Max Cherney for Barron’s. “Amid the Covid-19 pandemic, Square has added 11 million direct deposit accounts and the company could continue to build on its success, offering additional loan products.”
More Good News
News of Square’s possible foray into direct deposits is the latest sign of fintech companies, including plenty of ARKF components, moving into areas previously dominated by traditional banks. For example, Square is also playing a significant role in processing payroll protection program (PPP) loans.
Fintech allows financial firms to leverage cutting edge technology to reduce costs, improve decision making and risk controls, remove middlemen, and enhance customer experiences. A thematic approach includes investments that stand to benefit from structural change driven by demographic and technological changes.
Many Square “customers are small businesses that are increasingly seeing its Cash App as a business account—which will lead their interest to loans and other sorts of financial services offered by banks. In March, Square said it had obtained federal and state approval for an industrial loan charter, which effectively allows it to start its own bank in Utah,” according to Barron’s.
SunTrust’s Jeffrey believes investors should focus on other factors beyond Square’s earnings before interest, taxes, depreciation, and amortization (EBITDA).
Square investors “should toss out earnings before interest, taxes, depreciation, and amortization (Ebida) as a measure of Square’s financial performance and focus instead on the direct deposit accounts, software revenues, and overall market volume moving through its payment platform,” reports Barron’s, citing the analyst.
Nearly 110 ETFs feature exposure to Square stock, but the top three, including the aforementioned ARKF, are all ARK funds.
For more on disruptive technologies, visit our Disruptive Technology Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.